U.S. pork producers just came off the worst 18 months of negative profit margins in history, even 1998. There was optimism when hog futures rallied to contract highs at around $110 this spring that 2024 would be a more profitable year. However, that hope has faded.
Pork margins started off 2024 in the black, but spring and summer month hog futures have set back $15 to $17 from the contract highs set in mid-April.
Steve Meyer, senior livestock economist, Ever.Ag Insights, says cash and cutouts just stalled the last six weeks, pulling down the lean hog futures and cutting into break evens and profit levels.
“It has gotten progressively worse since March,” he says. “Back in March, the model I have - which is based on historical Iowa State University estimated costs and returns - had about $10 per head, and that’s for probably the low cost 25% of producers which I think the Iowa State model really represents. So, that was about $10 per head back in March. That model last week had minus $4, and it’s mainly been a reduction on the revenue side because of the selloff we’ve seen on the lean hog futures market.”
Meyer says the cost of production has also increased.
“We had about $85 in that cost model back in March and almost $88 now. So, the uncertainty of getting this crop planted has kind of put a little fuel on the corn and soybean markets and cost us some,” he says.
Cash and the Lean Hog Index have also stagnated as pork cutouts have been flat during April and May. Meyer says cutouts usually stage a seasonal rally of $6 to $8 in the spring. So, it’s not tied to hogs supplies but instead soft demand.
“Export demand has still been pretty good, so I don’t think that’s where it is,” Meyer explains. “If we look at the real per capita expenditures, pork real capita expenditures are down almost 5% year to date through March. That tells us that the softness we see is on the consumer side in the United States.”
He’s concerned about the slower demand with supplies ramping up into 4th quarter as weekly hog slaughter pushes over 2.7 million head and squeezes processing capacity.
This could mean additional pressure on cash and wholesale pork values ahead.
